4 things you need to flip a home

Tuesday

Aug 23, 2016 at 3:05 PMAug 23, 2016 at 3:05 PM

By Justin PierceSpecial to The Washington Post

You’ve been watching the flipping shows on TV, and you’re feeling the itch to try your hand. Well, in a way, the shows are right. Anyone can flip a home. Anyone can do anything once they’re properly educated and experienced. Here are the four things you need to get started:

1. MoneyWhat you really need is access to money. There are millions of individuals and institutions out there looking to fund real estate deals. More and more money is flooding the industry as home flipping once again gains favor.Here are a few sources:• Friends and family: This is where most people start. Do you have a wealthy family member or friend? Start talking to them about your aspirations, your plans and how you’ve prepared yourself to be successful. However, if everyone you knew growing up lived paycheck to paycheck or you hate to mix business and personal, keep reading.• Private lenders or hard money lenders: There are a lot of wealthy people looking to make better returns on their liquid assets. They are more sophisticated - mostly - and they have set up businesses to lend money to real estate investors. Many of these lenders advertise themselves on social networking sites and on real estate investment websites. Beware - their rates are pretty steep, usually ranging from 12 to 16 percent interest and two to six points. The price is well worth the speed and flexibility that they provide. They also lend at a much higher percentage than a bank. If your deal is good enough, they may lend you all the money you need for purchase and renovation.• Conventional banks: Banks are the cheapest option. I recommend talking to local banks and seeking a commercial loan, but you can finance a flip with a conventional mortgage. Either way, banks will want full financials, good credit, a significant down payment and you’ll probably have to pick up all the renovation costs on your own.• Mix and match: To make a deal work you can and should get creative. As an example, you can borrow $30,000 from Aunt Nelly and use it for the down payment on a conventional or hard money loan.Always have more money than you’ll think you’ll need. These projects can easily overrun schedules and budgets. Make sure you have a cushion to cover debt service and structural surprises.

2. Fundamental real estate and construction knowledgeYou can pretty much trust a good real estate agent to guide you through the administrative requirements of a purchase and sale, but you can’t fully trust them to tell you what a property will be worth after it’s fixed up.The real estate agent makes a commission only if you buy or sell a home. So, you have to take their assessments with a certain grain of salt. You have to have a basic knowledge of construction and design. You need to know what sells in your market and how much it will cost to get that done in your home.On your first few deals you’re going to want to have a good contractor give you estimates before you make an offer. The problem is: not all contractors are created equal. Prices, quality and reliability vary wildly.Don’t renovate homes to your taste. Renovate to the market. A good way to get a feel for your market is to visit large builders’ model homes.

3. A team of expertsOther professionals you’ll need:• Real estate attorney: Someone who can handle your tricky closings and peruse and write contracts if necessary.• Accountant/bookkeeper: You have to know your budget, how much you’ve spent to date and how much it will cost to finish the project at any instant, and how much money you have available. • Contractors and trades people: You need to know multiple good general contractors, HVAC techs, plumbers, electricians, flooring installers, painters, carpenters, landscapers, etc. Many people have thought they could tackle a renovation project by themselves and have failed. This is probably one of the biggest blunders first-time home flippers make. • Finance people: You need to know people at the bank. You need to know people with deep pockets and you need to know hard-money lenders. You never know when a great deal will fall in your lap, and when that happens you don’t have time to go begging for financing. • Engineers: If you do this long enough, you’re going to run into projects that require an architect or engineer. I also recommend that you always get a survey on every purchase.• Marketing expert: You or someone on your team needs to set up a marketing system to find sellers who for whatever reason want to sell their home without the time or hassles required with a conventional sell.

4. Courage:You need to have the courage to finally pull the trigger on a deal. Home flipping is not an exact science. No one can tell you with absolute certainty what a home will sell for after a given amount of renovation or what that renovation will cost you. Everything is an estimate.